The Business Buzz Blog provides you the latest updates on business news,business strategy guides,case studies and articles.

Tag Archives: FDI

India jumped 13 positions and was placed second in retail potential in the 2016 Global Retail Development Index (GRDI), released by AT Kearney, a Chicago-based consultancy. The country was ranked 15 in the previous year. The report profiled 30 developing countries.

“India’s high ranking is driven by GDP (gross domestic product) growth, improved ease of doing business, and better clarity regarding FDI (foreign direct investment) regulations. India is now the world’s fastest-growing major economy, overtaking China, and retail demand is being fueled by urbanisation, an expanding middle class, and more women entering the workforce,” said Mike Moriarty,

AT Kearney partner and co-author of the study. India’s retail sector has expanded at a compound annual growth rate of 8.8 per cent between 2013 and 2015, according to the report.

Analysts, however, did not agree that FDI was a key driver of retail growth in the country. They even questioned if India had made it easy to do business. They argued that while investment was allowed by the government into multi-brand retail stores, the riders put in place made it almost impossible for money to truly flow into the country.

India ranks second in retail potential “Most of the growth we see is driven by domestic funding. Look around, there is Aditya Birla Group or Reliance or Future, which are the biggest players in the market,” said Arvind Singhal, chairman and managing director of Technopak.

He said FDI was allowed in single brand retail stores and despite the likes of Zara and H&M, along with some other luxury brands, opening shop in India, their contributions are minimum.

“India’s growth story still comes from independent and unorganised retail markets,” he said. Singhal argued that India’s retail market was $550 billion, in which $380 billion came from food and groceries and $45 billion from fashion.

“Of the $380 billion in grocery, very little is from organised stores. Most fresh produce is still sold in the markets,” he said.

This is, however, set to change.

“The government has allowed 100 per cent FDI in food retail and we believe that those kind of stores will be profitable,” said Debashish Mukherjee, a partner and co-head of consumer industries and retail products practice for India and Southeast Asia, A T Kearney.

He said despite the riders, multi-brand stores will find traction in India. “These are business experience problems and once that is seen through you will see the market mature,” said Mukherjee.

The report admitted that infrastructure bottlenecks and state-level power dynamics still remained big concerns. The cash-and-carry segment was doing brisk business, the report said, where existing players such as Walmart and Metro planning to expand their base and targeting 70 and 50 stores, respectively, by 2020.

E-commerce was once again a big driver for retail growth in India, with several foreign brands using the likes of Jabong and Amazon to make their entry into the country. But, here too, FDI that did poured into the country was used for funding operational losses and providing discounts. Alibaba’s decision to enter the Indian market also influenced the ranking. Mukherjee said even if there were some barriers put in place they defined what the market would be. “This clarity has helped India get investments,” he said.

Analysts believe retail spending and corresponding investments are set to grow. “A strong monsoon will kickstart rural spend and you should see strong growth numbers in the October quarter,” said Singhal.

India’s rank was further amplified by the collapse of the South American and Russian economies.

“We also took Mexico and Chile out of the list because we believe that they have becomes developed economies in the retail perspective,” said Mukherjee.

NEW DELHI: A small change in foreign investment rules-by doing away with minimum 51% holding by a single Indian entity in a defence venture-has helped Mukesh Ambani’s Reliance Aerospace and Punj Lloyd bag licences that they had been waiting for. While increasing the foreign direct investment (FDI) cap for defence to 49%, the government did away with the clause that had been in the policy for years, as part of a strategy to attract investment in local manufacturing units. In special cases, 100% FDI has been allowed. The earlier rule did not allow Reliance Aerospace to get the licences to manufacture weapon launchers for combat aircraft as the promoters hold 45.3% in Reliance Industries. Similarly, the promoters of Punj Lloyd together have a 37% stake, which restricted a wholly owned subsidiary’s ability to bag licences to manufacture torpedoes, rocket launchers and combat vehicle, sources familiar with the development.

While the government did not disclose any details, an official statement said that a committee had cleared 19 proposals from several large Indian corporate houses – including the TATA, Mahindra and Bharat Forge – to bag licences for defence manufacturing.

In at least 14 other cases, the government has informed companies that licences are no longer required. These included Tata Advanced System’s proposal to manufacture aircraft and spacecraft components, Mahindra Aerostructure, which wants to make parts of aircraft and Reliance Aerospace’s flight control system manufacturing plans. Even before FDI rules were changed, the department of industrial policy and promotion had reduced the number of items in the defence sector that need licences and freed dual-use items, such as radars and aircraft components that have civilian use too, from licensing requirement.

For years, the defence ministry has frowned upon the entry of the private sector into the arena even as it had relied on imports, often involving middlemen. In fact, during UPA’s term in office, the commerce and industry ministry’s plea to increase the FDI cap for the sector was repeatedly blocked by A K Antony, the then defence minister. In recent months, however, the mood has changed as the department of defence production has backed private and foreign capital in local ventures.

Now, the government is working on further easing the rules, including doing away with annual capacity ceiling in industrial licences and also permit of sale of licensed items to other entities under the control of the home ministry, state governments, PSUs and other valid defence licensed companies without approval.